Whether you’re applying for a new credit card, a personal loan, or a mortgage, your credit score is likely to play a big role in whether or not your application is approved.
If your credit score is good, you will probably not only be able to borrow money whenever you want, but also to do so at affordable rates. On the other hand, with a bad credit rating, you may be refused a loan or end up with a higher interest rate.
But what if your credit score is neither good nor bad, but rather nonexistent? This is the case for about 53 million people who are “invisible when it comes to credit” – meaning they don’t have enough credit history to have a score attached to their name.
Often times, not having a credit score is as bad as having bad credit, and in some cases even worse. Banks, credit card companies and other lending institutions often deny credit to borrowers without any credit rating. But now, some banks are mobilizing to try to prevent this scenario.
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A lifeline for people with no credit score
It is common for some people to not have a credit score due to a lack of credit history.
Imagine your parents paid all of your college bills, and now you have your first job and want to apply for an apartment. Your landlord might do a credit check and find that you don’t have a credit score because you were never required to pay your bills. If so, that landlord could deny you a lease, even though you are a responsible person with a high paying job that can easily cover the rent.
Incidents like this happen all the time to those whose credit is invisible. But now some of the nation’s biggest banks are coming together to share checking and savings account information in hopes of helping people with no credit score get permission to borrow money. money whenever they want.
JPMorgan Chase, Wells Fargo and other well-known banks have tentatively agreed to a plan to share non-traditional account holder data, such as deposits and bill payments, to help those without a credit score to get approval for loans and credit cards.
Typically, the only information recorded and tracked for credit score purposes is installment loan data and revolving lines of credit, such as what your credit cards give you. So if you’ve been paying off a car loan and mortgage for years, it helps build your credit. But if your only bills so far have been utilities, groceries, and health care, and you pay them in cash or into a checking account, they won’t count against your credit history.
Suppose you pay your water bill on time every month through your bank account. Unfortunately, this positive activity does not normally count in helping you build a credit score. But under this new plan, he could. In fact, if this plan comes to fruition, it could give millions of Americans access to more affordable borrowing options.
Push for change
The push for banks to strike a data-sharing deal came from the Roundtable for Economic Access and Change, or Project REACH, a program run by the Office of the Comptroller of the Currency. The objective of the project is to reduce the barriers that prevent some borrowers from accessing credit. These borrowers, historically speaking, are people of color and disproportionately lower incomes. And they often face higher borrowing costs because, in the absence of a credit score, they are usually forced to resort to expensive options, like payday loans.
If you don’t have a credit score but are used to paying your bills on time through your bank, you might be in luck soon. If this positive information can be used to help you establish your creditworthiness, it could open the door to a world of opportunity.